M&A activity is likely to remain strong in 2022. In the past decade, M&A volume has increased by an average of 11% per year. This trend will continue as companies look for a competitive edge and investors become increasingly confident about global economic growth.
Companies are preparing for another year of record-breaking dealmaking.
Low loan rates, a spike in private-equity investment, and corporations’ attempts to adapt to larger trends in their sectors spurred a record number of mergers and acquisitions in 2021. According to Refinitiv, a data provider, the overall value of worldwide M&A deals through December 21 was $5.7 trillion, up 64% from the same time the previous year. Meanwhile, the overall number of transactions increased by 22% to 59,748, according to Refinitiv.
Many of the reasons that fueled dealmaking in 2021 are projected to persist in the next year, according to M&A attorneys and consultants. However, regulatory developments on the horizon, including as interest rate hikes from the Federal Reserve, which might raise corporations’ borrowing costs, as well as more scrutiny from antitrust authorities, could slow the pace of corporate tie-ups. It’s also unclear if future Covid-19 versions, like as Omicron, would have an influence on business dealmaking, according to experts.
“We look at major patterns that have persisted throughout time and ask, ‘Are they more likely to continue or not?’” And our view is that, in general, they are likely to persist into next year.” David Harding, an advising partner at professional services company Bain & Co., agreed.
Throughout the year, firms used financial reserves acquired early in the epidemic to seek mergers and acquisitions. According to S&P Global Market Intelligence, cash and equivalents at S&P 500 businesses climbed 11% in the third quarter, to $3.78 trillion, compared to the same time the previous year.
AT&T Inc. and Discovery Inc. decided to combine their media holdings into a new publicly listed business, which was a blockbuster deal. AT&T will earn $43 billion as part of the agreement, and AT&T stockholders will control 71 percent of the new business after it closes.
AT&T and Discovery have chosen to combine their media businesses into a new publicly listed corporation.
Associated Press photo by Steven Senne
Other notable transactions include Square Inc.’s $29 billion acquisition of Afterpay Ltd., a buy-now-pay-later startup, and Oracle Corp.’s $28.3 billion purchase of Cerner Corp., a medical records company. Square changed its name to Block Inc. earlier this month.
When considering whether or not to agree to a deal, finance chiefs of acquiring corporations have had to battle with high values. “What’s different about this boom versus previous booms is…less there’s price sensitivity,” said Michael Diz, co-chair of the law firm Debevoise & Plimpton LLP’s mergers and acquisitions division.
According to Bain, transaction multiples grew across sectors in 2021 compared to the previous year. Transaction multiples are determined as the ratio of median enterprise value to profits before interest, taxes, depreciation, and amortization. With 28 times and 24 times, respectively, the technology and healthcare industries commanded the biggest multiples.
ChargePoint Holdings Inc., a developer of electric car charging stations located in Campbell, Calif., completed two acquisitions this year to extend its European business. It paid around €250 million in cash and shares for Has-to-be software and about €75 million for ViriCiti, a fleet-electrification startup.
ChargePoint’s Chief Financial Officer Rex Jackson is a well-known entertainer.
ChargePoint Holdings photo
According to Chief Financial Officer Rex Jackson, the corporation approached the two agreements with the objective of being picky. Mr. Jackson stated of the company’s target pick, “It’s going to be pricey because the space is highly valuable, so let’s make sure we get what we want.”
During the pandemic, several firms reviewed their portfolios and approached 2021 with the intention of selling business lines or purchasing companies in order to grow. Some corporations bought technology companies to boost their digital capabilities, while others bought rivals to increase sales.
In November, Signet Jewelers Ltd. paid $490 million in cash for Charlotte, North Carolina-based Diamonds Direct USA Inc., a wedding jewelry retailer. According to Joan Hilson, the company’s finance head, the agreement would help Signet raise sales of “affordable luxury.” “The market is performing fairly well in that tier,” Ms. Hilson said, “and we feel we have opportunities to grab additional share there.”
According to Bain’s study of data from Dealogic, a financial information business, mergers using special-purpose acquisition entities accounted for 11% of transaction values worldwide through December 8, up from 6% in full-year 2020.
Charging stations by ChargePoint.
Sergio Flores is a photographer for The Wall Street Journal.
Because SPACs, which are effectively publicly traded pools of capital, normally have a two-year window to execute an acquisition, the rise in investor interest this year is likely to stimulate further deal activity in 2022. According to Brian Salsberg, global head of the integration group at professional services company Ernst & Young, SPACs may operate as a larger stimulant for deal making by persuading enterprises that may not have been ready to sell to contemplate mergers.
According to Bain, private equity and venture capital firms boosted their share of overall M&A transaction values by around two percentage points in 2021 compared to 2020, to 19 percent and 8%, respectively.
According to Colin Wittmer, U.S. deals leader at accounting and consulting company PricewaterhouseCoopers, a number of economic indicators, including expanding U.S. gross domestic product, high corporate profitability, and big corporate cash holdings, predict deal making will stay strong in 2022.
Nonetheless, deal advisors say that US authorities are scrutinizing huge mergers more closely, especially in the technology industry. The Federal Trade Commission filed a lawsuit earlier this month to prevent Nvidia Corp. from acquiring Arm Holdings, a semiconductor company. Lina Khan, the chairwoman of the Federal Trade Commission, has said that she intends to fight more business mergers and potentially monopolistic behavior.
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Despite this, companies are searching for ways to put the money generated during the epidemic to good use, according to experts. Sales of investment-grade bonds in the United States fell somewhat in 2021 after a high in 2020, when corporations accumulated cash to withstand the economic blow caused by the epidemic. Businesses sold such bonds for $1.4 trillion through December 21, down 22% from a year ago, according to Refinitiv.
According to advisors, the continued growth in private equity funds will be a role in M&A in 2022, notably in the technology and healthcare industries. According to Refinitiv, private equity and venture capital companies raised $1 trillion worldwide through Dec. 21, up 35% from the end of 2020.
It’s too early to determine if next year will break the M&A milestones established in 2021, but business advisors believe there seem to be few variables that would slow things down considerably.
Kristin Broughton can be reached at [email protected]
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